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Automotive and New Mobility
Automotive and New Mobility / 28 June 2019
Time for a reset
Voices become louder predicting dire straits for the EV market in China. After a significant slowdown of the growth rate for new energy vehicles in the past two months, some commentators were quick to foresee troubles ahead. Even more so, as subsidies are further reduced by mid-year.
Economic prosperity is built on growth, financial valuations highly depend on growth prospects. No wonder then that volume increase is pursued almost like a religion. The thirst for quantity appears to have the upper hand on a measured, rather cautious management of growth. Indeed, there is a delicate balance to strike between capacity planning to ensure the availability of enough cars to sell, and a bold, yet realistic sales forecast. The more so when the vehicle market has been supported over the years by a growth policy. Lack of parking spaces, long traffic jams, rising air pollution amplified by idling vehicles are public costs for disproportionate development of sales volume and vehicle infrastructure. Underutilized factories and high inventories at dealerships bear witness of consequences from mistaken sales assessments.
For quite a while already, the EV market in China, by far the world’s largest, has been propelled by multiple subsidies of all kinds. Efforts to translate the strategic vision of lawmakers to make China a leader in the new energy sector have led to breathtaking EV volume growth, on the back of a massive churn-out of mostly entry-level local electric cars; this has also favoured the emergence of a hardly sustainable bubble of new EV car makers, all determined to get their piece of the cake. It has been time to cut government aid and let market forces exert a regulating effect. The resulting slowdown in sales should not be seen as demise, but as a necessary reset for future healthy growth.
It is unlikely that Chinese consumers’ appetite for passenger vehicles would abruptly disappear. Demand for EVs will flourish if three conditions are met. Firstly, the basic parameters put in place (battery performance, charging infrastructure, etc.) must prompt sufficient consumer confidence and peace of mind. Secondly, the EV offer must be competitive to the conventional ICE vehicle offer – pricing is a critical aspect. Thirdly, there must be an attractive EV offer out there!
Car makers have a significant role to play. As we can expect a flood of a modern, new generation of EVs to be launched by international car makers in the coming years – with attractive designs, advanced interior space and worry-free battery performance – it is reasonable to agree that “it will be very difficult for a customer to decide against an electric car.” This statement from VW’s CEO should be taken as a promise!
In the discussion about sales growth for EVs, there is one critical aspect not to be overlooked, though: The emerging trend from car ownership to vehicle usage. The successful penetration of electric vehicles cannot be solely judged by rising sales volumes. The critical question is how well car brands will fare with making their electric vehicles available to consumers, in whatever form this may be.